Traders Edge 8/16/12- an update on natural gas

The latest natural gas storage levels were released this morning, showing that gas in storage only increased by 20 bcf to 3,261 Bcf over last weeks 3,241 Bcf. Although gas in storage remains above the 5-year average, the differential is rapidly declining. As of August 10, the weekly natural gas storage levels were 272 Bcf over the the 5-year average. This compares to the 600 Bcf as of the beginning of May and 754 Bcf at the of March. This decline is impressive and is due to a combination of hotter-than-normal summer temperatures and slowing production rates of natural gas (noting that gas drillers are reducing capex spending programs and gas rig counts are in decline. See the Baker Hughes Rig Count.)

In any event, the above chart tracks the difference between the weekly natural gas storage and the respective 5-year average. You will notice that except for a few bumps, that storage levels relative to the 5-year average generally follows a steady ebb and flow pattern. This is important as this pattern can used to helped gauge where future natural gas storage levels will be, provided the current fundamental dynamics creating the upward or downward movement in the pattern remains intact.

Now the following comments are not necessarily a forecast. There are an observational inference that assumes the current trend(s) remain constant. That said, natural gas storage levels look like they will, at least, reach parity with the 5-year average at some point in mid-October this year. This would be an important milestone in the energy-generation markets, as lower natural gas storage levels would support higher prices across the energy complex. But, this is already occurring.

For instance, natural gas prices have been rising since late April.

 Ditto for commodity coal contracts

 This is further indication that my thesis that the problems in the coal industry are more weather-related than anything else (see here). In addition, if calls for a snowy, cold winter (see this) come true, then we will only see a continuation of this trend.